Like many of you, I am currently watching the FDI in retail debate in India, and marvelling at the breadth of reactions elicited. They seem to range right across from “we are opening the flood gates to the new East India Companies” to the other extreme where it’s all part of free market ideology, and is hence ‘good” by definition. And at some point we have all (hopefully) started wondering what lies beyond the pictures being painted by ideologues and lobbyists, pretending to be intellectuals.
Firstly, I must confess I cannot understand the ruckus around “why a decision so soon”! This topic has been hanging fire for years now, with 100% ownership of cash and carry chains being approved as long back as 1997 by the Third Front government! Successive governments have pussyfooted around the topic, and in general, India has taken very few concrete steps towards further market reforms since the broad swathe of decisions taken during the crisis of 1991. So yes, one is welcome to dislike the decision. But to debate whether a decision should have been taken at all, simply boggles the mind! Especially when we are in the midst of a government that can be best described as suffering from policy paralysis of a particularly debilitating nature. Some would say any decision is better than no decision, because we can at least measure the consequences, and not have the regret of opportunities lost due to rigor mortis!
Secondly, the argument about millions of small grocers getting squeezed out seems specious at best. In most developing economies or sectors, businesses move towards economies of scale over time. This would happen irrespective of whether the Wal-Mart’s of the world came to India or not. Massive, multi brand malls are already springing up like weeds in sunshine and hyper malls are a reality of life anyway. If not Carrefour or Ikea, the Reliance’s, Total Malls and Spencer’s of the world would squeeze out the small grocer anyway.
So who are we trying to protect here in reality? Oh, I forgot.. the poor farmer and the labour force in the unorganized market, who are today caught in the intricate web of inefficiency, inequality and dishonesty that we call our food sector supply chain. Fair enough, why upset a system where the end farmer receives less than 1/5th of the retail price charged to consumers in cities? Let them continue to dump tomatoes on the road, because it costs more to transport it to the local market. And let’s not take advantage of the fact that we produce between 10 to 15 % of the world’s vegetables and fruit, at half the developed world’s average production cost. Let’s continue to have only 1.7 to 0.5% of the global market, and happily munch on Chinese apples in our backyards. (Ref. usaid report, Sep 2009).
Again, why make it so difficult for the unorganized sector to adulterate most of the food we consume, sometimes with dangerous substitutes? Why pull livelihood away from all those food inspectors, who can barely get by on a salary nowadays? And oh yes, the employment generated by the unorganized sector just cannot be compared with what the large professional retail chains would bring in. I mean, who wants to exchange the experience, training, brand equity and environmental comforts of working for an MNC chain, against the joy of handing out a slightly under weighed kilo of sugar to a neighbourhood customer in a newspaper wrapper?!
So let’s face it, the people most worried about FDI in retail are not the mom & pop shops round the corner. They are scared anyway. It’s not the labour in the current supply chain. All they want is jobs with good working conditions. It’s not the farmers. Cutting out of middlemen and promoting contract farming would almost instantly translate to fewer farmer suicides (we are estimated to have one every 32 minutes). The people worried are essentially local big business, some of whom have poured money into multiple b2c ventures, with no clue as to what they are really doing in these businesses, ranging from gold jewellery to shoe stores. They were essentially banking on the fact that all they had to do was to squeeze out the local mom and pop shops. And consumers would be left with no option but to come to them. Now, all of a sudden, they have to compete with the best in the world, and they simply do not have the stomach to do so. This appears to be one of the driving forces, beyond the usual rag tag band of anti-globalization voices.
Finally, is our government mis-representing the facts, when they claim the move will generate 10 Million jobs? Well, perhaps it is, and perhaps not. Only time will tell. But fact remains that mis-representation is stock in trade for politicians across the world anyway, and sometimes one cannot even blame them completely. They need to be able to score brownie points with large masses of their population, and they have little hope of doing so by spouting fancy economic theories. They just have to make populist statements for public consumption. But a populist statement does not automatically imply ulterior motives behind the decision. And even if there were ulterior motives, that is a separate discussion on ethics in government and is not specific or endemic to this particular debate.
Before readers rush to assume that I am some kind of free market or blind liberalization proponent, let me conclude by stating that this is far from the truth. I do believe regulation is important within the approvals sought to be given. What kind of working conditions with the incoming MNC’s provide? What kind of ethical procurement practices will they follow? How will they set up value addition infrastructure within the domestic market? How will they help us through global sourcing for export, and so on? In the process, if they end up destroying the current oligarchies and power structures, and more benefit actually flows to the end producers, then this could be a decision with far reaching consequences for India.
Deloitte report on the India retail market
The economist article on market reforms in India
USAID report on IT for organized food retail chains